CEO of Credbull shares insights on the challenges and effects of RWA tokenization

In an exclusive interview with crypto.news, Jason Dehni, CEO and co-founder of Credbull, discussed the transformative impact of real-world asset (RWA) tokenization on the finance industry. RWA tokenization has emerged as a major trend in 2024, offering the potential to democratize traditional finance and make it more accessible to a wider population. This technology breaks down barriers that have traditionally limited investment in assets like U.S. Treasuries, real estate, and artwork.

By transitioning these assets onto blockchain platforms, RWA tokenization enables more accessible and real-time transactions at reduced costs, eliminating the need for traditional intermediaries. This can lead to a more efficient market with better price discovery and lower transaction fees. As of April 2024, the total value locked in real-world asset protocols was nearly $8 billion.

However, the increased liquidity and larger investor base introduced by tokenized assets also bring regulatory compliance complexities. With tokenized asset markets projected to reach trillions by 2030, there is a need for a robust infrastructure to support this growing sector.

Dehni believes that RWA tokenization has the power to transform the financial landscape, but it requires robust regulatory frameworks to unlock its full potential and ensure its sustainable integration. Tokenizing assets introduces new economic models that challenge traditional pricing and market behavior, requiring new financial models to accommodate the enhanced accessibility, liquidity, and transparency.

While tokenization offers benefits such as global trading, continuous price discovery, and reduced market closure impacts, it may also deviate from the efficient market hypothesis (EMH). Easy access to tokenized assets can attract retail investors prone to behavioral biases, potentially causing price anomalies. Social media and online communities can significantly impact token prices, leading to sentiment-driven market movements. Tokenized markets might experience higher volatility due to rapid trading and speculative behavior.

The widespread tokenization of real-world assets may also impact central bank policies, particularly concerning monetary supply and inflation control. The development of central bank digital currencies (CBDCs) is expected to accelerate with the adoption of asset tokenization. However, poor design and rapid implementation of CBDCs could have unintended negative consequences for monetary policy, such as disintermediation of bank deposits and destabilization of financial markets.

While asset tokenization has the potential to democratize access to investments and reduce economic disparity, it also poses challenges. Not all assets should be tokenized, and investors require substantial education to navigate the complex nature of tokenized assets. Without proper regulation, there is a risk of market manipulation and inconsistent liquidity across asset types.

The global regulatory and compliance landscapes are also affected by asset tokenization. Varying regulations across jurisdictions complicate global investment and issuance, increasing compliance challenges. Seamless interoperability between token platforms and efficient transaction handling by blockchain networks are crucial for widespread adoption. To balance innovation with financial security, a layered regulatory approach is recommended, with universal basic compliance requirements and more stringent regulations for higher-risk activities.

Cross-jurisdictional legal conflicts, asset custody, and transaction enforceability are significant implications of tokenization. International collaboration, harmonized laws, and innovative solutions are needed to address these challenges. Global custodians must meet diverse legal standards for secure storage, audit mechanisms, and transparent reporting. Ownership rights in tokenized assets must be recognized across jurisdictions, and legal processes for transferring ownership must be clear and enforceable internationally. Dispute resolution mechanisms for smart contracts need to be established, and compliance with AML/KYC regulations and tax regimes must be ensured.

In conclusion, RWA tokenization has the potential to revolutionize the finance industry, but it requires robust regulatory frameworks, education for investors, and international collaboration to navigate the complexities and challenges it presents.